Big U.S. banks sink US$22-billion into mortgage relief

Five U.S. banks have provided about US$22-billion in mortgage relief to customers under a deal to settle borrowers’ accusations over foreclosures, a report by the settlement’s monitor said on Monday.

The report said that Bank of America Corp, which owes the most, improved in providing first-lien mortgage modifications to customers, trailing only JPMorgan Chase & Co through September.

Bank of America provided US$889.2-million in first-lien modifications that reduced loan balances for consumers, a turnaround from August when the bank had completed none. JPMorgan Chase & Co’s total was US$903.1-million in modifications, the most of the five banks.

Monday’s report by Joseph Smith, the former North Carolina Banking Commissioner who is serving as the settlement’s monitor, said the five banks together have provided about US$22-billion in customer relief, up from US$10.6-billion in August.

The banks reached the settlement in February with state and federal officials to resolve allegations of faulty foreclosures. The pact requires banks to provide around US$20-billion of consumer relief by taking actions such as reducing loan balances for struggling borrowers and refinancing loans for customers whose homes are worth less than the value of their mortgages.

Related

The banks, however, have not necessarily met their obligations yet because the settlement only provides for partial credit for certain kinds of relief. The banks only receive credit for US$0.45 of every dollar of a writedown through a short sale, for example.

Short sales — in which borrowers sell their homes for less than the value of the mortgage — accounted for the largest portion of the total relief, about US$13.1-billion.

Bank of America delivered US$11.8-billion in total relief to consumers, the most of any bank, with short sales accounting for US$7.4-billion of its total. JPMorgan provided the second most relief — about US$6-billion.

The other banks in the settlement are Wells Fargo & Co (US$2.5-billion in total relief), Citigroup Inc (US$1.1-billion) and Ally Financial Inc (US$587.8-million).

“The relief the banks have reported is encouraging,” Smith said in a statement, while noting that the banks’ obligations still need to be reviewed and credited.

If a lender does not meet its required relief within three years, it will be required to pay a penalty of no less than 125 percent of its unmet commitment, the report said.

Bank of America, which acquired troubled lender Countywide Financial in 2008, owes the most out of five banks, about US$11.8-billion in consumer relief and other payments. The bank has said it will meet its obligations within the first year.

Counting US$4.2-billion more in active trial modifications, the five banks have provided US$26.1-billion in relief through September to 300,000 borrowers, according to the report.